Press Release

Oct 23,2019

MSA Safety Announces Third Quarter Results

Focus on innovation and productivity drives strong revenue growth, operating margin expansion and cash flow

PITTSBURGH, Oct. 23, 2019 /PRNewswire/ -- Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2019.

MSA Safety Incorporated

Quarterly Highlights

  • Revenue was $351 million, increasing 6 percent from a year ago on a reported basis and 8 percent on a constant currency basis.

  • GAAP operating income increased 49 percent to $60 million or 17.0 percent of sales, compared to $40 million or 12.1 percent of sales in the same period a year ago. Adjusted operating income increased 11 percent to $63 million or 18.0 percent of sales, compared to $57 million or 17.2 percent of sales in the same period a year ago, driven by gross margin expansion and operating expense leverage.

  • GAAP earnings increased 25 percent to $42 million or $1.08 per diluted share, compared to $34 million or $0.86 per diluted share in the same period a year ago. Adjusted earnings were $45 million or $1.15 per diluted share, relatively consistent with the same period a year ago. The company's higher effective tax rate detracted $0.07 from adjusted earnings in the current period.

  • Operating cash flow was $51 million. MSA paid down $24 million of debt, funded a $16 million dividend on common stock, and invested $10 million in capital expenditures in the quarter.

Comments from Management

"MSA delivered a strong quarter of revenue growth, margin expansion and cash flow," commented Nish Vartanian, MSA President and CEO.  "The pace of our top-line growth accelerated in the quarter to 8 percent, largely on continued market-share gains in fall protection and gas detection."

MSA's latest innovations in these product areas include the company's V-Series line of fall protection harnesses and the 5000 series of next generation fixed gas monitors.  For the quarter, more than 35 percent of MSA's total sales were from products introduced within the past five years. "This focus on innovation, combined with cost discipline and our continued efforts to enhance productivity, all contributed to our incremental margin profile of more than 30 percent," he said.

Mr. Vartanian noted that the benefits of MSA's broad end market exposure and diversified portfolio were evident in the company's quarterly results. "We were able to realize high-single digit revenue growth despite product certification delays that we - and all manufacturers of firefighting breathing equipment - had to deal with in the U.S. Fire Service market during the third quarter," he commented.  In particular, he noted that the certification and launch of the company's next generation G1 self-contained breathing apparatus (SCBA) occurred on September 30, 2019, approximately six weeks later than expected.  Mr. Vartanian added that the related impact of lower SCBA volumes in the quarter was mostly offset by revenue growth in firefighter helmets and protective apparel.

"Incoming order pace gained momentum in the quarter with a book-to-bill ratio exceeding 100 percent. With this healthy backlog and a strong balance sheet, we remain well positioned to deliver on our growth expectations for 2019 and make investments that strengthen our positions across key markets," Mr. Vartanian concluded.

 

MSA Safety Incorporated

Condensed Consolidated Statement of Income (Unaudited)

(In thousands, except per share amounts)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018









Net sales

$

351,014



$

331,096



$

1,026,726



$

996,320


Cost of products sold

192,313



182,794



556,959



546,844


Gross profit

158,701



148,302



469,767



449,476










Selling, general and administrative

82,900



78,013



245,337



240,226


Research and development

13,520



13,296



41,482



39,752


Restructuring charges

1,850



2,615



11,203



10,223


Currency exchange (gains) losses, net (a)

(913)



(252)



17,338



2,571


Product liability expense

1,730



14,627



8,155



25,469


Operating income

59,614



40,003



146,252



131,235










Interest expense

4,259



4,492



11,089



14,454


Loss on extinguishment of debt



1,494





1,494


Other income, net

(2,929)



(4,252)



(8,850)



(8,292)


Total other expense, net

1,330



1,734


2,239



7,656










Income before income taxes

58,284



38,269



144,013



123,579


Provision for income taxes

15,673



4,206



37,913



23,606


Net income

42,611



34,063



106,100



99,973


Net income attributable to noncontrolling interests

(372)



(346)



(822)



(706)


Net income attributable to MSA Safety Incorporated

$

42,239



$

33,717



$

105,278



$

99,267










Earnings per share attributable to MSA Safety
Incorporated common shareholders:








Basic

$

1.09



$

0.88



$

2.72



$

2.59


Diluted

$

1.08



$

0.86



$

2.69



$

2.55










Basic shares outstanding

38,649



38,417



38,617



38,328


Diluted shares outstanding

39,144



39,036



39,130



38,914



(a) Year-to-date currency exchange losses includes a $15.4 million non-cash charge related to the recognition of currency translation adjustments associated with the closure of MSA's South Africa affiliates.

 

 

MSA Safety Incorporated

Condensed Consolidated Balance Sheet (Unaudited)

(In thousands)



September 30, 2019


December 31, 2018

Assets




Cash and cash equivalents

$

108,481



$

140,095


Trade receivables, net

248,406



245,032


Inventories

192,199



156,602


Notes receivable, insurance companies

3,646



3,555


Other current assets

133,696



111,339


    Total current assets

686,428



656,623






Property, net

158,957



157,940


Operating lease assets, net

50,470




Prepaid pension cost

68,387



57,568


Goodwill

428,629



413,640


Notes receivable, insurance companies, noncurrent

51,980



56,012


Insurance receivable, noncurrent

48,029



56,866


Other noncurrent assets

206,263



209,363


   Total assets

$

1,699,143



$

1,608,012






Liabilities and shareholders' equity




Notes payable and current portion of long-term debt, net

$

20,000



$

20,063


Accounts payable

69,773



78,367


Other current liabilities

172,435



183,630


   Total current liabilities

262,208



282,060






Long-term debt, net

352,073



341,311


Pensions and other employee benefits

163,342



166,101


Noncurrent operating lease liabilities

40,836




Deferred tax liabilities

11,251



7,164


Product liability and other noncurrent liabilities

161,128



171,857


Total shareholders' equity

708,305



639,519


   Total liabilities and shareholders' equity

$

1,699,143



$

1,608,012


 

 

MSA Safety Incorporated

Condensed Consolidated Statement of Cash Flows (Unaudited)

(In thousands)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018









Net income

$

42,611



$

34,063



$

106,100



$

99,973


Depreciation and amortization

9,547



9,378



28,339



28,585


Change in working capital and other operating

(1,453)



77,374



(46,189)



57,639


  Cash flow from operating activities

50,705



120,815



88,250



186,197










Capital expenditures

(9,998)



(9,808)



(23,523)



(18,620)


Acquisition, net of cash acquired





(33,196)




Change in short-term investments

113



(57,090)



(17,189)



(57,090)


Property disposals

42



942



123



4,001


  Cash flow used in investing activities

(9,843)



(65,956)



(73,785)



(71,709)










Change in debt

(24,127)



(38,390)



12,937



(80,675)


Cash dividends paid

(16,281)



(14,624)



(47,215)



(42,605)


Other financing

836



(1,313)



(6,555)



(575)


  Cash flow used in financing activities

(39,572)



(54,327)



(40,833)



(123,855)










Effect of exchange rate changes on cash,

cash equivalents and restricted cash

(4,393)



(1,822)



(5,378)



(9,952)










Decrease in cash, cash equivalents and
restricted cash

$

(3,103)



$

(1,290)



$

(31,746)



$

(19,319)


 

 

MSA Safety Incorporated

Segment Information (Unaudited)

(In thousands, except percentage amounts)



Americas


International


Corporate


Consolidated

Three Months Ended September 30, 2019








Sales to external customers

$

234,624



$

116,390



$



$

351,014


Operating income







59,614


Operating margin %







17.0

%

Restructuring charges







1,850


Currency exchange (gains), net







(913)


Product liability expense







1,730


Strategic transaction costs







952


Adjusted operating income (loss)

58,971



13,776



(9,514)



63,233


Adjusted operating margin %

25.1

%


11.8

%




18.0

%

Depreciation and amortization







9,547


Adjusted EBITDA

65,342



16,854



(9,416)



72,780


Adjusted EBITDA %

27.8

%


14.5

%




20.7

%









Three Months Ended September 30, 2018








Sales to external customers

$

209,343



$

121,753



$



$

331,096


Operating income







40,003


Operating margin %







12.1

%

Restructuring charges







2,615


Currency exchange (gains), net







(252)


Product liability expense







14,627


Strategic transaction costs







56


Adjusted operating income (loss)

51,532



13,329



(7,812)



57,049


Adjusted operating margin %

24.6

%


10.9

%




17.2

%

Depreciation and amortization







9,378


Adjusted EBITDA

57,573



16,559



(7,705)



66,427


Adjusted EBITDA %

27.5

%


13.6

%




20.1

%




Americas


International


Corporate


Consolidated

Nine Months Ended September 30, 2019








Sales to external customers

$

679,699



$

347,027



$



$

1,026,726


Operating income







146,252


Operating margin %







14.2

%

Restructuring charges







11,203


Currency exchange losses, net







17,338


Product liability expense







8,155


Strategic transaction costs







2,937


Adjusted operating income (loss)

171,463



39,888



(25,466)



185,885


Adjusted operating margin %

25.2

%


11.5

%




18.1

%

Depreciation and amortization







28,339


Adjusted EBITDA

190,084



49,313



(25,173)



214,224


Adjusted EBITDA %

28.0

%


14.2

%




20.9

%









Nine Months Ended September 30, 2018








Sales to external customers

$

633,812



$

362,508



$



$

996,320


Operating income







131,235


Operating margin %







13.2

%

Restructuring charges







10,223


Currency exchange losses, net







2,571


Product liability expense







25,469


Strategic transaction costs







208


Adjusted operating income (loss)

151,456



41,960



(23,710)



169,706


Adjusted operating margin %

23.9

%


11.6

%




17.0

%

Depreciation and amortization







28,585


Adjusted EBITDA

169,691



52,001



(23,401)



198,291


Adjusted EBITDA %

26.8

%


14.3

%




19.9

%


The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations in all geographies outside of the Americas. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.


Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources.  As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense and strategic transaction costs and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers.  Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers.   Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance.  The Company's definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.  As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.

 

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


Consolidated



Three Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(11)

%

19

%

2

%

12

%

17

%

24

%

7

%


(3)

%


6

%






















Plus: Currency
translation effects

1

%

2

%

2

%

2

%

1

%

3

%

2

%


2

%


2

%


Constant currency
sales change

(10)

%

21

%

4

%

14

%

18

%

27

%

9

%


(1)

%


8

%





Nine Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(4)

%

6

%

1

%

4

%

9

%

21

%

4

%


(6)

%


3

%






















Plus: Currency
translation effects

2

%

2

%

2

%

2

%

3

%

4

%

3

%


3

%


2

%


Constant currency
sales change

(2)

%

8

%

3

%

6

%

12

%

25

%

7

%


(3)

%


5

%


Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


Americas Segment



Three Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(8)

%

15

%

1

%

13

%

27

%

40

%

11

%


22

%


12

%






















Plus: Currency
translation effects

%

1

%

1

%

1

%

%

1

%

%


1

%


1

%


Constant currency
sales change

(8)

%

16

%

2

%

14

%

27

%

41

%

11

%


23

%


13

%





Nine Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

1

%

6

%

%

4

%

16

%

31

%

7

%


9

%


7

%






















Plus: Currency
translation effects

%

%

1

%

1

%

%

1

%

1

%


1

%


1

%


Constant currency
sales change

1

%

6

%

1

%

5

%

16

%

32

%

8

%


10

%


8

%


Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Constant currency revenue growth (Unaudited)


International Segment



Three Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(17)

%

43

%

6

%

10

%

6

%

2

%

1

%


(28)

%


(4)

%






















Plus: Currency
translation effects

3

%

6

%

3

%

3

%

3

%

5

%

3

%


3

%


3

%


Constant currency
sales change

(14)

%

49

%

9

%

13

%

9

%

7

%

4

%


(25)

%


(1)

%





Nine Months Ended September 30, 2019


Breathing Apparatus

Firefighter Helmets and Protective Apparel

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection

Fall Protection

Core Sales


Non-Core Sales


Net Sales

GAAP reported
sales change

(12)

%

8

%

5

%

3

%

2

%

8

%

%


(21)

%


(4)

%






















Plus: Currency
translation effects

5

%

7

%

6

%

6

%

5

%

6

%

5

%


4

%


5

%


Constant currency
sales change

(7)

%

15

%

11

%

9

%

7

%

14

%

5

%


(17)

%


1

%


Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.

 

 

MSA Safety Incorporated

Supplemental Segment Information (Unaudited)

Summary of constant currency revenue growth by segment and product group




Three Months Ended September 30, 2019


Consolidated


Americas


International

Fall Protection

27

%


41

%


7

%

Firefighter Helmets and Protective Apparel

21

%


16

%


49

%

Fixed Gas and Flame Detection

18

%


27

%


9

%

Portable Gas Detection

14

%


14

%


13

%

Industrial Head Protection

4

%


2

%


9

%

Breathing Apparatus

(10)

%


(8)

%


(14)

%

Core Sales

9

%


11

%


4

%







Non-Core Sales

(1)

%


23

%


(25)

%







Net Sales

8

%


13

%


(1)

%








Nine Months Ended September 30, 2019


Consolidated


Americas


International

Fall Protection

25

%


32

%


14

%

Firefighter Helmets and Protective Apparel

8

%


6

%


15

%

Fixed Gas and Flame Detection

12

%


16

%


7

%

Portable Gas Detection

6

%


5

%


9

%

Industrial Head Protection

3

%


1

%


11

%

Breathing Apparatus

(2)

%


1

%


(7)

%

Core Sales

7

%


8

%


5

%







Non-Core Sales

(3)

%


10

%


(17)

%







Net Sales

5

%


8

%


1

%

 

 

MSA Safety Incorporated

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures

Adjusted earnings (Unaudited)

Adjusted earnings per diluted share (Unaudited)

(In thousands, except per share amounts)



Three Months Ended
September 30,




Nine Months Ended
September 30,




2019


2018


%
Change


2019


2018


%
Change













Net income attributable to MSA Safety Incorporated

$

42,239



$

33,717



25%


105,278



99,267



6%



















Tax (benefit) associated with U.S. Tax Reform



(1,956)







(1,956)




















Non-deductible non-cash charge related to the recognition of currency translation adjustments (a)







15,359






















Tax benefit associated with ASU 2016-09: Improvements to employee share-based payment accounting

(187)



(430)





(2,180)



(2,306)





Subtotal

42,052



31,331



34%


118,457



95,005



25%













Product liability expense

1,730



14,627





8,155



25,469




Restructuring charges

1,850



2,615





11,203



10,223




Strategic transaction costs

952



56





2,937



208




Currency exchange (gains) losses, net

(913)



(252)





1,979



2,571




Loss on extinguishment of debt



1,494







1,494




Asset related losses (gains), net

38



(733)





271



415




Income tax expense on adjustments

(878)



(4,024)





(5,912)



(9,645)




Adjusted earnings

$

44,831



$

45,114



(1)%


$

137,090



$

125,740



9%













Adjusted earnings per diluted share

$

1.15



$

1.16



(1)%


$

3.50



$

3.23



8%


(a) Included in Currency exchange (gains) losses, net on the Statement of Income.

Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company's performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.

 

About MSA:  
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures.  Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations.  The company's comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military.  MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices.  With 2018 revenues of $1.4 billion, MSA employs approximately 4,800 people worldwide.  The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America.  With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America.  For more information visit MSA's web site at www.MSAsafety.com.

Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance. Forward looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"), including our most recent Form 10-K filed on February 22, 2019. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties.  MSA's SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.

Non-GAAP Financial Measures: 
This press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/msa-safety-announces-third-quarter-results-300944359.html

SOURCE MSA Safety

Media Relations Contact: Mark Deasy (724) 741 - 8570; Investor Relations Contact: Elyse Lorenzato (724) 741 - 8525

About MSA

Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or lifethreatening situations. The company's comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military. MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices. With 2017 revenues of $1.2 billion, MSA employs approximately 4,700 people worldwide. The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America. With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America. For more information visit MSA's web site at www.MSASafety.com

Shareholder Tools